November 13, 2019

The treasury has proposed a bill that will bring changes to the current financial system. These changes are to streamline and make the financial sector more robust. By increasing availability of credit, bringing innovation in the sector and putting in place a functional consumer protection the proposals are hoping to achieve this.

This bill is seeking the establishment three bodies to enable the government to achieve this mandate. These authorities include; Financial Markets Conduct Authority, the Financial Sector Ombudsman, the Conduct Compensation Fund Board, and the Financial Services Tribunal.

Financial Sector Ombudsman

Complaints between providers of financial products and the financial consumers will be resolved by the Financial Sector Ombudsman. This office will be receiving complaints regarding financial dispute, attempt to mediate and make a binding determination.

Compensation Fund Board

The Conduct Compensation Fund Board will oversee the holding and managing the conduct compensation. It is also tasked to determine and make compensation payments. The board will compensate financial customer if loss is incurred because of breach of contract by a licensed provider.

Financial Market Conduct Authority

The Financial Markets Conduct Authority will have the responsibility of protecting consumers from misleading and unfair conduct, promoting literacy, ensuring consumers can make informed decisions. It will also oversee regulating cost of credit and the accuracy of financial information.

All financial institutions will be required to get a financial conduct license from the Financial Markets Conduct Authority. The bill makes it mandatory for a person or business that offers financial product or service to a retail financial customer to have the license. A Ksh. 5,000,000 fine or imprisonment for 2 years is the prescribed punishment for offenders.

There is also a proposal to come up with conduct rules- these are rules that will govern providers of financial products or service. These rules will ensure that consumers are treated fairly, and the providers do not engage in financial crime.

Regarding advertising, a person who does not hold a financial conduct license is not allowed to advertise for provision of credit. The proposed law states that the advertisement need to be signed by the lender before it is displayed. The providers of financial services will not be allowed to provide information that is false to the loan consumers.

Providers of financial services will not be allowed to charge interest rates that exceed the maximum rates prescribed. Currently, the interest cap places the limit to maximum of 4 percent of Central Bank rate which currently stands at 9.50 percent.

Despite that, these proposals are in contention with the Central Bank of Kenya’s (CBK) mandate. One of the institution’s core mandate is to promotes financial stability. The success of the proposed authorities will be determined by how different their task will be from CBK’s.

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